A new platform for profitable growth
Beijer Electronics Group has now created excellent potential for profitable, healthy growth in line with our targets. Much of what we had planned for fell into place in 2017. If 2016 featured major adaptation with several structural moves, 2017 was about fine-tuning our operations and adapting our organization, as well as more initiatives.
With the benefit of hindsight, we can see that in 2017, our adaptation enabled us to reverse the negative trend of falling sales. The Group achieved organic growth of 8%, which is somewhat above our long-term target. Order intake was stronger, with a 10% increase.
However, we are not satisfied with our earnings. EBIT was 18 MSEK, and our EBIT margin was 1.5%, which are clearly unsatisfactory—our target is a 10% margin. One explanation for our low earnings are our significant product development initiatives, and selective actions in marketing and sales in 2017.Our expenditure on development was 148 MSEK, or 12% of sales.
Investing in growth
We view our initiatives as investments in growth, and expect them to pay off soon. Our product range has been regenerated, and in our view, now has far more impact. And we have more launches for 2018. We have improved procurement, logistics and manufacture, delivery precision and quality in our Beijer Electronics business entity, which overall, improved efficiency. Our organization has been realigned in a more customer-oriented direction.
New leaderships for the Group’s three business entities were put in place in the year. In turn, they have created improved management teams. Appointments to the teams were internal and external. The Group’s reorientation has involved fairly extensive competence succession. Downsizing has been offset by new appointments that fit our new direction better.
The major change processes went faster and more smoothly than I expected. This is also evidence of the competence and professionalism that our people possess. It is people that make the company and generate results—individually and in harmony with each other, backed by the company’s resources.
It’s also our people that are ultimately responsible for the company operating on a sustainable footing. Sustainability is an important component that should be integrated into Beijer Electronics Group’s business. In 2017, we initiated a process to measure our initiatives in relation to policies and guidelines on a more structured basis. We think this will have more tangible effects. This work has resulted in the Group’s first SustainabilityReport, which is being published separately. The Report is summarized in this Annual Report.
The Group’s sustainability work is guided by the UN’s ten principles on human rights, labor, the environment and anti-corruption. We’re aware that no chain is stronger than its weakest link. Laws, regulations and policies are vulnerable to individual breaches, which is why as CEO and chief decision maker in our daily operations, I want to emphasize individual responsibility. One good guiding principle in a complex environment is to apply common sense. The message from the company is that we must comply with laws, regulations and ordinances. Clear internal regulations, with transparency, are important. Within this framework, wewelcome all creativity. If rules are breached, the consequences should be clear and unequivocal, but obviously, lawful.
Value creation on a growing market
Fundamentally, our whole business is about value creation, managing the Group’s brands and assets, and what we have built so far. Value creation benefits our employees, customers, suppliers and wider society, and not least, our shareholders. Our shareholders invested 225 MSEK in the rights issue we executed in 2017, and we’re grateful for the confidence they have shown us. This capital injection improves our room to manoeuver in our endeavor to create value.
Beijer Electronics Group is a company operating in a large and growing global sector. Digitalization and connectivity are words on everyone’s lips. These are the segments where we have our roots, and they’re part of the organization’s DNA. Urbanization, investment in infrastructure, energy etc. are also contributors to this growing market. This gives us every prospect of growing and creating value.
Meanwhile, customer needs for different solutions are changing. The share of software solutions is growing, and the Industrial Internet of Things is proliferating into a growing array of segments. These various trends are benefiting us, because the Group’s new strategy builds on these changes. As a relatively small company, we must primarily identify the right segments and niches where we can make an impression, and a generate earnings from that. Solutions tailored for harsh and demanding environments are one example.
Prospects for 2018
Westermo’s strategy is proof of the possibilities—this business entity advanced its leadership as a provider of network solutions to the train segment, achieving a strong rally with significantly higher order intake, sales and earnings in 2017. Westermo’s challenge right now is to take its operations to the next level, and improve cash flow, while fine-tuning its new organization to improve efficiency. Beijer Electronics is heading in the right direction, with healthy order intake and sales growth. The new operator panels in the X2 series are the business entity’s most successful launch to date. Its next mission is to boost earnings and profitability. Regrettably, Korenix’s new President took over someproblems that the previous—and as it proved disloyal—management left behind. Accordingly, this operation featured adaptation in the year, with an all-new management and a strategy overhaul. Korenix is focusing on a recovery in 2018.
The Group’s new direction, with mainly proprietary products and services, also generated a higher gross margin than previously. This offers more leverage in earnings given higher sales. After our major initiatives, we expect that expenses for development will largely remain at current levels. We have significantly regenerated our product range, which has already had a positive impact on sales. We’re confident of continued positive progress ahead. For the full year 2018, we think the Group can increase sales and earnings from year-2017 levels.
President and CEO